Correlation Between RLJ Lodging and Telkom Indonesia

Can any of the company-specific risk be diversified away by investing in both RLJ Lodging and Telkom Indonesia at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining RLJ Lodging and Telkom Indonesia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between RLJ Lodging Trust and Telkom Indonesia Tbk, you can compare the effects of market volatilities on RLJ Lodging and Telkom Indonesia and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in RLJ Lodging with a short position of Telkom Indonesia. Check out your portfolio center. Please also check ongoing floating volatility patterns of RLJ Lodging and Telkom Indonesia.

Diversification Opportunities for RLJ Lodging and Telkom Indonesia

0.76

Correlation Coefficient

RLJ Lodging  Telkom Indonesia

Poor diversification

The 3 months correlation between RLJ and Telkom is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding RLJ Lodging Trust and Telkom Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telkom Indonesia Tbk and RLJ Lodging is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on RLJ Lodging Trust are associated (or correlated) with Telkom Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telkom Indonesia Tbk has no effect on the direction of RLJ Lodging i.e., RLJ Lodging and Telkom Indonesia go up and down completely randomly.

Pair Corralation between RLJ Lodging and Telkom Indonesia

Considering the 90-day investment horizon RLJ Lodging Trust is expected to under-perform the Telkom Indonesia. But the stock apears to be less risky and, when comparing its historical volatility, RLJ Lodging Trust is 1.33 times less risky than Telkom Indonesia. The stock trades about -0.16 of its potential returns per unit of risk. The Telkom Indonesia Tbk is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  1,659  in Telkom Indonesia Tbk on December 27, 2024 and sell it today you would lose (193.00) from holding Telkom Indonesia Tbk or give up 11.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

RLJ Lodging Trust  vs.  Telkom Indonesia Tbk

RLJ Lodging Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days RLJ Lodging Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's essential indicators remain relatively steady which may send shares a bit higher in April 2025. The new chaos may also be a sign of medium-term up-swing for the company stakeholders.

Telkom Indonesia Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Telkom Indonesia Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with RLJ Lodging and Telkom Indonesia

The main advantage of trading using opposite RLJ Lodging and Telkom Indonesia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RLJ Lodging position performs unexpectedly, Telkom Indonesia can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Telkom Indonesia will offset losses from the drop in Telkom Indonesia's long position.

The idea behind RLJ Lodging Trust and Telkom Indonesia Tbk pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.